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Cipla: Domestic market blues...

Domestic pharma major, Cipla Ltd, has posted disappointing March numbers. The company has reported a marginal 2% dip in income from operations, but net profits shrunk by over 24% during the quarter. The company's operating margins nearly halved to just over 12% in 4QFY03.

(Rs m)

4QFY02

4QFY03

Change

FY02

FY03

Change

Net Sales

3,943

3,882

-1.6%

14,005

15,724

12.3%

Other Income

21

111

440.0%

284

258

-9.0%

Expenditure

3,055

3,411

11.7%

10,961

12,561

14.6%

Operating Profit (EBDIT)

888

471

-47.0%

3,044

3,164

3.9%

Operating Profit Margin (%)

22.5%

12.1%

21.7%

20.1%

Interest

5

9

76.0%

21

16

-22.4%

Depreciation

72

67

-6.7%

213

283

33.1%

Profit before Tax

832

506

-39.2%

3,094

3,122

0.9%

Tax

215

38

-82.1%

743

648

-12.8%

Profit after Tax/(Loss)

617

467

-24.3%

2,351

2,475

5.3%

Net profit margin (%)

15.7%

12.0%

16.8%

15.7%

No. of Shares

60.0

60.0

60.0

60.0

Diluted Earnings per share*

41.2

31.2

39.2

41.3

P/E Ratio

15.4

*(annualised)

The company's domestic sales fell by 10% during the quarter (to about Rs 2 bn). The management seems to have attributed this to the slower domestic industry growth (about 2%-3%) during the quarter and also to the VAT worries owing to which stockists put off purchases until further clarity emerged on the issue. However, the dip in domestic sales was compensated by a 9% growth in export sales (to over Rs 1.9 bn). The export sales growth is very encouraging. The operating margin plummeted consequent to the flattish sales growth.

In FY03, the company finished with just over 12% topline growth, with a marginal operating margin decline (can be attributed to the poor March quarter margins). Cipla managed to grow its bottomline by a staid 5% during the year. This growth was possible only because of a 12% dip in tax provisions, which came about owing to the tax benefits of the new Goa plant.

Cost snapshot

(Rs m)

4QFY02

4QFY03

Change

FY02

FY03

Change

(Increase)/decrease in stock in trade

-444

-249

-

-851

-787

-

Raw material cost

2,002

2,235

11.6%

6,908

7,968

15.4%

Staff cost

178

191

7.2%

633

729

15.2%

Other expenses

1,318

1,234

-6.4%

4,272

4,651

8.9%

Total expenditure

3,055

3,411

11.7%

10,961

12,561

14.6%

The stock tanked today and touched new 52-week lows of Rs 565. Currently, at Rs 634 the stock trades at 15.4x FY03 earnings. We believe that the long term prospects of the company are good and are encouraged by the continuing export growth. However, the slowdown in the domestic markets is a cause for concern and may temper sentiment in the short term.

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